Guidance and the Financial Advice Market Review. Tom McPhail Head of policy

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1 Guidance and the Financial Advice Market Review Tom McPhail Head of policy

2 Purpose of FAMR Explore the regulatory framework governing the provision of financial advice and guidance and its effectiveness in ensuring that consumers have access to the help they need in order to make effective decisions about their finances.

3 What would good look like? Good availability of affordable, high quality advice and guidance, which consumers at all stages of their lives are able to access to help them with their particular needs. There is greater innovation in the interests of consumers, encouraged by a flexible and well understood regulatory framework for advice. A range of channels through which consumers are able to access advice and guidance, including in the workplace, and appropriate flexibility in the way consumers are able to pay for advice. Consumers are engaged with their own financial affairs and so seeking out the advice and guidance they need.

4 FCA Mission: Our Future Approach to Consumers In all markets we want to see: Consumers are enabled to buy the products and services they need because the environment in which they are sold is clear, fair and not misleading with a good choice architecture. High-quality, good value products and services that meet consumers needs. In addition, where markets are working well for consumers we will be able to observe: Inclusion where everyone is able to access the financial products they need and the needs of vulnerable consumers are taken into account. Protection consumers are appropriately protected from harm

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8 1 Financial Advice Working Group Complete 2 Amend Definition of Advice (MiFID) Complete, but 3 Guidance on advice definitions Complete, but 4 Streamlined advice Complete, but 5 Time limits on qualifications Complete 6 Cross-subsidisation Complete 7 Ensure MiFID II doesn t impede streamlined advice Complete 8 Improve suitability reports Complete 9 Advice Unit Complete 10 Portable fact finds In Progress 11 Employer fact sheet Complete 12 Employer guidance to promote financial well-being In Progress 13 Increase tax exempt employer advice allowance Complete 14 Introduce 500 tax free pension advice allowance Complete 15 Flexible adviser charging Complete 16 Pension dashboard In Progress 17 FAWG clarify definitions of advice and guidance Complete 18 FAWG rules of thumb and nudges Complete, but 19 Ongoing rules of thumb to SFGB In Progress 20 FSCS funding review In Progress 21 Review of PII covers In Progress 22 FOS best practice events Complete 23 FOS publication on uphold rates Complete 24 FOS information centre for advisers Complete 25 Expanded FOS Assessor report Complete 26 Longstop review In Progress 27 Baseline and monitoring In Progress

9 So what s the problem? Definition of advice Guidance on advice definition Streamlined advice Working Group rules of thumb and nudges

10 Definition of advice (1) Advising a person is a specified kind of activity if the advice is a personal recommendation. (1A) A personal recommendation is (a) a recommendation made to a person in that person s capacity as an investor or potential investor, or in that person s capacity as agent for an investor or a potential investor; (b) a recommendation that that person does any of the following (whether as principal or agent) (i) buying, selling, subscribing for or underwriting a particular investment which is a security or a relevant investment, or (ii) exercising any right conferred by such an investment to buy, sell, subscribe for or underwrite such an investment; and (c) a recommendation that is (i) presented as suitable for the person to whom it is made, or (ii) based on a consideration of the circumstances of that person. (1B) A recommendation is not a personal recommendation if it is issued exclusively (a) through distribution channels; or (b) to the public.

11 Demand side Numbers of consumers using advice and guidance and different channels used Use of workplace advice and guidance Reported reasons for not taking advice Consumers willingness to pay for advice Consumer levels of engagement Levels of satisfaction with advice and complaints data

12 Supply side Number of advice firms and advisers Number of independent/restricted firms Minimum investment/pension pot size advised on Adviser charges Industry views on the clarity of the regulatory framework The extent to which firms are offering different types of services e.g. automated advice

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14 Guidance Experts (both industry and consumer) emphasised the need for guidance on retirement issues, not just pensions. Ideally, this guidance would look at someone s personal finances (and their circumstances) in the round, rather than separating them out into money guidance and pensions guidance. There is a general consensus (backed by a large body of qualitative and quantitative evidence) that people s behaviour when it comes to planning for retirement is characterised by a high degree of passivity and inertia. PFRC, Bristol University for MAS

15 Guidance A lack of personalisation and proactive follow-up are key issues experienced around guidance which can lead to a lack of action in the absence of further support. When prompted, participants were open to using guidance services but had some reservations about the extent of their usefulness given their perceived generic nature and lack of personalised advice. NMG Baseline for FCA

16 Guidance The current position on implicit recommendations prevents firms from providing guidance of real value to consumers Some degree of tailoring of information is crucial It should be possible for a communication to be personalised, and contain an element of regulated advice without this constituting a personal recommendation in every case, specifically where the overall impression to a reasonable observer would not be that a recommendation was being presented as suitable or based on a consideration of their circumstances Complexities around filtering, for example on best buy lists Changes to life-style investment funds in contract-based pensions Segmentation of client communications Risk of retrospective interpretation of personalised communications as implicit recommendations

17 Guidance Delivery Single Financial Guidance Body Financial Institutions Both

18 Policy management Treasury Promotion of Fintech PSD2 and Open Banking Salami-slicing pensions and an ISA for every day of the week Financial inclusion and exclusion DWP Auto-enrolment Single Financial Guidance Body/MAS/TPAS/Pension Wise What Works research Financial Inclusion Policy Forum Pension Dashboard FCA Innovation Hub and Regulatory Sandbox Retirement Outcomes Review Smarter Communications Vulnerable Consumers